CAG Report on State Finances FY25: Rising Subsidies and Role of the CAG

Subject: GS 2: Polity and Governance

Context: 

The Comptroller and Auditor General (CAG) of India has released its FY25 report on state finances.

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Key Highlights of the CAG Report on State Finances FY25

• Disproportionate Growth: Over the past decade (FY16 to FY25), absolute subsidy spending by 28 states has tripled from ₹1.4 lakh crore to ₹4.4 lakh crore, significantly outstripping the growth of their overall total expenditure, which grew only 2.3 times.

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• Macro-Fiscal Stress Indicators: State subsidies as a proportion of overall revenue expenditure entered double digits for the first time in FY25, expanding rapidly to constitute 10.2% of the total Gross State Domestic Product (GSDP) across India compared to 7.7% in FY16.
• Sectoral Dominance: The fiscal burden is highly concentrated in two main sectors, with Energy (primarily power subsidies) accounting for 43% of total outlays, followed by Agriculture (price support, seed/fertilizer distribution, and loan waivers) at 30%.
• Extreme Regional Concentration: Fiscal asymmetry is highly visible, with just five states (Maharashtra, Tamil Nadu, Karnataka, Madhya Pradesh, and Rajasthan) consuming 54% (₹2.3 lakh crore) of the total national subsidy pool. 
  • Karnataka, MP, TN, and Punjab emerged as the top spenders, where subsidies took up over 13.5% of their entire state budgets.
• The Lean Spending Clusters: Six Northeastern states (Arunachal Pradesh, Sikkim, Nagaland, Meghalaya, Tripura, Assam) spent less than 1% of their total budgets on subsidies, while states like Kerala and Uttarakhand spent under 2%. 
  • The CAG attributes this to smaller consumer bases, lower industrial density, and lesser power-intensive agricultural irrigation.

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